1. Natasha Chou Spring 2013 Student Managed Investment Fund

2. Agenda Our Recommendation: HOLD Business Description Industry Overview
Competitive Positioning
Revenue and Margin Drivers
Valuation
Financial Analysis
Investment Risks
Q&A Session

3. Business Description Founding and History Management
Founded in 1964 as Blue Ribbon sports - originally a distributor
Became “Nike” in 1978 – now a global iconic brand
Ever since Nike was established, innovation has been a key driver to the company’s success
Management

4. Business Description Leader in Innovation Nike Sports Watch
Nike Plus Fuel Band
iPod Nike app
Shox
Dri-Fit

5. Product Mix Corporate restructuring
Sold Umbro and Cole Haan in 4Q 2012 to refocus business model
Focus on Jordan, Converse, NIKE brands
Expected: Increased profit margins and dividends

6. Sales Mix

7. Growth Strategy Focus on China
Utilizing Basketball and NBA Players to raise awareness
Targeting the youth market
17% Growth from FY 2010 to FY 2011
23% Growth from FY 2011 to FY 2012

8. Industry Overview
Nike is the leading player in the athletic footwear industry
Company
Market Cap.
NIKE (NYSE)
$54.82 billion
Adidas (FWB)
$16.6 billion
Under Armour (NYSE)
$5.87 billion
Asics (TYO)
$3.60 billion
Sketchers (NYSE)
$1.13 billion

9. Adidas Group (includes Reebok)
Industry Overview
Company
Fiscal 2010
Fiscal 2011
Fiscal 2012
CAGR ( )
Nike
$10,301
$11,518
$13,426
14.2%
Adidas Group (includes Reebok)
$7,021 (€5,389)
$8,132 (€6,242)
$9,018 (€6,922)
13.3%
Puma
$1,856 (€1,425)
$2,006 (€1,540)
$2,078 (€1,595)
5.8%
Asics
$1,759 (¥165,808)
$1,857 (¥175,057)
$1,940 (¥182,807)
5.0%

10. SWOT Analysis Strengths Opportunities Weaknesses Threats
Global Market Leader with Iconic Brand Name
Heavy emphasis in R&D
Share buyback program will restore shareholders’ confidence in company
Opportunities
Potential to penetrate relatively unsaturated emerging markets
Product Development – Nike is arguably a fashion brand and has potential to market to fashion forward youth culture
Weaknesses
Labor and factory conditions has hurt the company’s publicity
Nike has wasted resources in the past few years by investing in a fashion focused company
Threats
Fierce sponsorship competition from Adidas and other well known brands
Possibility of having unforeseen losses due to currency fluctuation

11. Porter’s Five Forces Factor Score Description Buyer’s Power Neutral
Buyers have many different options when it comes to which brand they choose. However, they have very little influence over prices.
Supplier’s Power
Weak
Suppliers have very little power since they are supplying raw materials and there is no differentiation from one supplier to another.
Industry Rivalry
Intense
There are many different brands with similar products offered at similar prices.
Threat of Substitution
High
There is little differentiation between products of one brand and products of another.
Barriers to Entry
Brands that are already in the market have built brand equity that can be difficult to challenge.

12. Valuation DCF: $48.91 to $57.29 Key assumptions Valuation Date
Revenue Growth
Terminal Value

13. Valuation Comparable Model: $38.82 to $62.31
Competitors PE
TEV/EBITDA
TEV/REVENUE
Residual Income: $49.91 to $79.19
LT Growth of 1.5%

14. Valuation - Final Price Range $49.91 to $57.29
- Market Price at Valuation Date: $59.53

15. Revenue and Margin Drivers
Revenue Drivers
Focus on the consumer
Research and Development
Margin Drivers
Low Manufacturing Cost
Adapting to global economies

16. Financial Analysis
Revenue, Net income and Profit margin

17. Sale of Umbro to Iconix (December 2012)
EBT Excl. Unusual Items
2,442.3
2,553.0
2,517.0
2,844.0
3,007.0
3,087.0
Restructuring Charges -
(195.0)
(24.0)
Impairment of Goodwill
(199.0)
Gain (Loss) On Sale Of Assets
60.6
Asset Writedown
(202.0)
Other Unusual Items
EBT Incl. Unusual Items
2,502.9
1,957.0
2,983.0
3,063.0

18. Working capital and Free cash flow
Working capital decreased by $782 million from $3,377 million in 2009 to $2,595 million in 2010 because of the increase of cash and cash equivalents

19. Investment Risks
Financial results may be adversely affected if substantial investments fail to produce expected returns
Risks associated with overseas sourcing, manufacturing, and financing
Concentration of retail market share among a few retailers may increase Nike’s credit risk and ability to sell their products

20. Conclusion Our Recommendation: HOLD A global iconic brand name
Penetrating relatively unsaturated markets globally
Refocusing its business model on its core competency
Steady increase in dividends
Stock buyback program will restore shareholder confidence

21. Q&A Session

22. Appendix

23. Appendix